Yiren Digital, Unloved And Undervalued
Yiren Digital Ltd. (YRD) is a leading digital personal financial management platform in China. The company provides customized holistic wealth solutions to China's mass affluent population as well as retail credit facilitation services to individual borrowers and small business owners.
In 2015, the company IPO'd on the New York Stock Exchange and priced its 7,500,000 American depositary shares (ADS) at $10 for a total offering size of $75 million. Each ADS represents two ordinary shares of the company. Morgan Stanley & Co. International plc, Credit Suisse Securities (USA) LLC, China Renaissance Securities (Hong Kong) Limited, and Needham & Company, LLC were acting as joint book-runners, for the offering.
What happened?
One of the main reasons why this stock went from a high in 2016 ($53.50) to penny levels was the mess in peer-to-peer (P2P) lending in China. China experienced a significant boom in the early 2010s, as numerous online platforms emerged to facilitate lending between individuals and small businesses. However, the rapid growth of the industry also led to a number of problems and fraudulent activities, which eventually resulted in what is often referred to as the "P2P lending mess" in China.
One of the main issues was the lack of proper regulation and oversight. Many P2P lending platforms operated without adequate licensing or supervision, leading to a proliferation of fraudulent platforms and Ponzi schemes. These platforms attracted investments from individuals seeking higher returns than traditional financial institutions could offer but often failed to fulfill their promises or abruptly shut down, resulting in massive losses for investors.
As the number of failed or problematic platforms increased, the Chinese government stepped in to address the situation. In 2016, regulators introduced a series of measures to tighten oversight and rein in the P2P lending industry. These measures included requiring platforms to obtain licenses, setting limits on loan sizes and interest rates, implementing investor suitability requirements, and establishing funds to compensate investors for losses.
Since then, the government has been actively cracking down on illegal and non-compliant P2P lending platforms. Thousands of platforms have been shut down, and many company executives and operators have faced legal consequences. The regulatory efforts aimed to protect investors and restore confidence in the sector, but the aftermath of the P2P lending mess has had a lasting impact on the industry in China. The current stock price of Yiren Digital is still a reminder and result of the problems that have occurred during this mess.
Role model and credibility
In 2017 the company was awarded the Best P2P Lending Platform in China Award at The Future of Finance Summit organized by The Asian Banker. It was the first company in China to receive this prestigious reward. Each shortlisted company for an award undergoes a rigorous three-month assessment that evaluates the company's management capabilities, business influence, financial performance, customer experience, risk management, technology, innovation, and strategy. In addition, it received a P2P Audit Certification at the Summit to help maintain industry standards as well as help customers, investors, and regulators identify credible players in the digital world. The evaluation process involves audit submissions to be completed in a comprehensive data sheet where the basic quantitative and qualitative information will be collated and processed.
Credit markets are improving
In 2020 Yiren Digital had a loss because of a business restructuring with the controlling shareholder CreditEase Holdings to streamline the company's service lines and reposition Yiren as a comprehensive personal financial service platform. Because of the strategic transition, Yiren Digital has been solely focusing on the growth of its wealth management and loan facilitation-based credit businesses.
What's the take?
Yiren Digital runs a profitable business model that has not been appreciated by the market and investors alike. In a normal world, the company would have a market cap of more than one billion dollars.
Plotting some Earnings Per Share over the last years:
2022 EPS 1.9754
2021 EPS 1.9004
2020 EPS -1.1776 (Transactional year, removing legacy business)
2019 EPS 1.7798
2018 EPS 2.2622
Yiren's Price/Earnings ratio is below two and the lowest in the Credit Services market in China. The current stock price of $2.37 doesn't reflect the fundamentals of the company. With the latest cash value per share of $7.06 and book value per share of $9.97, the stock seems heavily undervalued.
Source: finviz.com
Source:http://ycharts.com
Yiren Digital has been participating in the Deutsche Bank Depositary Receipts Virtual Investor Conference (“dbVIC”) last week and will be participating in J.P. Morgan's 19th Global China Summit at the end of this month. Hopefully, this will shine more light on this interesting company and its stock price. Yiren Digital should bring more investors' attention to its stock by initiating a dividend.
A rerating of the stock price could be eminent if they can get their message to be heard.
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Disclosure:
Not sure why this stock doesn't get more love. Lots of potential here and clearly undervalued.
US-listed China stocks have always had a relatively hard time on American exchanges because of VIE structures, frauds, corporate governance issues, etc. Despite all these issues I think there are some deep value plays out there.
It seems that many investors have been blind or don't trust China and Chinese companies. But $YRD is a hell of a bargain stock!
Yeah, it's a fact. If they would liquidate Yiren Digital investors would hit the jackpot. But that's just wishful thinking. Management has to find a way to promote their stock or ask themselves the question of why they are still listed on the NYSE. If they can't turn the tide in the stock price it doesn't make any sense to be there.
The rationale is that some investment metrics will improve and could go back to a more reasonable average valuation. A P/E ratio of 5 would allow the stock price to go to $10. Sentiment in many US-listed China stocks has been terrible over the last few years. Management teams should consider dual listings, going private, or initiating a dividend that can compete with the current interest rates in the USA.